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PwC’s Banking InsightsAugust 2017

PwC’s Banking Insights

Table of contents

Topic Page.no

Preface 3

Impact assessment of regulatory changes in August 2017 4

• Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standard

4

• Tri-Party Repo (Reserve Bank) Directions, 2017 6

• Reserve Bank Commercial Paper Directions, 2017 9

• Interest Subvention Scheme for Short Term Crop Loans during the year 2017-18 12

Other notifications in August 2017 18

Impact assessment of regulatory changes in September 2017 19

• Trade Repository for OTC Foreign Exchange and Interest Rate Derivatives 19

Other notifications in September 2017 22

Contacts 25


Impact assessment of regulatory changes in August 2017

Impact assessment of regulatory changes in September 2017

ContactsOther notifications in September 2017

Preface

3 PwC PwC’s Banking Insights

Other notifications in August 2017

India, the fastest growing economy in the world over the past year , has felt the effects of two structural changes—namely demonetisation and the roll-out of the Goods and Services Tax (GST). While the jury is still out on how the impact of these changes on the long-term growth of the economy, one thing is pretty clear that the growth engine of the economy, i.e. rural India, has been disrupted. More specifically, the unorganised sector has been hit by demonetisation and small and medium-sized enterprises (SMEs) are feeling the heat due to the implementation of the GST. Though India may benefit in the long run as the share of organised sector increases in the GDP, the growth rate of the economy has slowed down significantly and all the major agencies, including the International Monetary Fund (IMF), have cut the growth forecast for the current financial year . Some economists have been speculating about a further rate cut and also some sort of fiscal stimulus to kick-start growth. Also, given that elections are to be held

in some key states in the next year along with the general election in 2019, we can expect some populist sops from the government.

Also, as per the RBI regulations, the clean up of the bank balance sheet by recognising non performing assets (NPAs) is reaping the expected results, as is evident from the banking sector results, which are showcasing high provisioning numbers. Many feel that the government needs to come up with a relief package mainly for public sector undertaking (PSU) banks in the form of capital infusion. This would be useful as the credit growth of PSU banks has been declining.

Banks are increasingly facing pressure from non-banking finance companies (NBFCs) and losing market share to them as SMEs are increasingly going to them for their loan needs. Further, the Reserve Bank of India (RBI) came up with the P2P lenders which brought the whole sector under the NBFC regime. As new FinTech players and innovations enter the sector, we expect PSU banks to increasingly face pressure.




ContactsOther notifications in August 2017

Other notifications in September 2017

Preface


Preface Impact assessment of regulatory changes in August 2017





Circular reference: RBI/2017-2018/36 DBR.BP.BC.No. 81/21.04.098/2017-18 dated 2 August 2017

Applicability: All Scheduled Commercial Banks (excluding RRBs)

Synopsis of the regulation:The below-mentioned clause has been added in para 5.4 of the RBI circular:

5.4 Level 1 assets of banks would comprise of the following and these assets can be included in the stock of liquid assets without any limit as also without applying any haircut:

1. a) For banks incorporated in India,

• Reserves held with foreign central banks in excess of the reserve requirement1, where a foreign sovereign has been assigned a 0% risk weight as per rating by an international rating agency.

• Reserves held with foreign Central Banks in excess of the reserve requirement, to the extent these balances cover the bank’s stressed net cash outflows in that specific currency, in cases where a foreign sovereign has been assigned a non-0% risk weight as per rating by an international rating agency, but a 0% risk weight has been assigned at national discretion under Basel II Framework.

Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standard1

1. https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11078







Impact assessment:

With the inclusion of deposits held by Indian banks with foreign central banks, the RBI has broadened the asset base for the calculation of high-quality liquid assets (HQLAs). Banks shall now include reserves held with foreign banks while calculating the Level 1 HQLA. The only restriction here for the banks is that overnight deposits with central banks and term deposits with the central banks that:

• are explicitly and contractually repayable on notice from the depositing bank; or

• that constitute a loan against which the bank can borrow on a term or on an overnight basis but automatically renewable basis (only where the bank has an existing deposit with the relevant central bank) would only be considered for liquid assets.

This amendment helps the bank to meet the stringent LCR requirements in the future period (90% for January 2018 and 100% for January 2019) by using their offshore investments. The entire excess deposits in the host country, which has nil risk weightage as given by international rating agency, shall form part of the level 1 HQLA. However, in case the risk weightage of the host country is not nil, the bank shall include only that much portion of the excess reserves which covers the net outflows of the bank in the foreign sovereign’s currency.

The banks shall thus amend its calculation of HQLA for the purpose of calculating the LCR and continue reporting the same as per the extant guidelines.







Circular reference: RBI/2017-18/42 FMRD.DIRD.4/14.03.024/2017-18 dated 10 August 2017

Applicability: All market participants

Background and objective:The money market regulator introduced the tri-party repo product in the market in the hope that it will pave the way for a vibrant corporate bond borrowing and lending market, providing better liquidity and price discovery, reducing the market cost of capital and allowing access to non-bank finance for a greater number of borrowers in the economy.

A tri-party repo is a financial market instrument where a repo transaction between two parties is administered by a tri-party agent which is a licensed financial institution. The differentiating factor for the tri-party repo vis-à-vis the market repo is the presence of the third party which is known as the tri-party agent.

Tri-Party Repo (Reserve Bank) Directions, 20172








Synopsis of the regulation:

• A tri-party repo is a type of repo contract wherein a third entity (apart from the borrower and lender) called a tri-party agent acts as an intermediary between the two parties. The work of the tri-party agent is to administer the transaction between the lender and the borrower. Here, the agent does post-trade processing, collateral selection, payment and settlement, custody and management during the life of the transaction.

• A tri-party repo may be traded using any trading process permitted by the central bank. Tri-party repos may be traded over-the-counter (OTC), including electronic platforms, or stock exchanges. All trades would have to be reported within 15 minutes of the trade for public dissemination to the Clearing Corporation of India (CCIL), exchanges or authorised reporting platforms.

• All tri-party agents need prior approval from the RBI to act in that capacity. Scheduled commercial banks, recognised stock exchanges and clearing corporations of stock exchanges are eligible to be tri-party agents.

• In the case of a triparty repo, an investor places its money with a custodian bank, which in turn lends it to another institution and then assets are pledged as collateral for the loan.

• Once a lender or borrower notifies about transactions, the agent matches the transaction amount and conditions and, if successful, processes the transaction. The agent shall automatically select sufficient collateral that satisfies the credit and liquidity criteria set by the buyer from the securities account of the seller.

• All settlements will be on delivery vs payment (DvP) basis, with or without netting of securities and/or cash. Settlement can also be guaranteed or non-guaranteed, bilateral/multilateral, through clearing houses of exchanges or any other clearing arrangement approved under the Payment and Settlement Systems Act, 2007.

• Besides initiating the deal, the tri-party agent continues to manage the transaction by making a revaluation of the collateral, margining, making income payments on the collateral, etc.

• The tri-party agent does not change the relationship between the parties and does not participate in the risk of transactions. In case of default by one party, the impact still falls entirely on the other party. This implies that the level of involvement of the agent is less.







Impact assessment:

To conclude, we can say that the introduction of tri-party repos will likely contribute to better liquidity in the corporate bond repo market. This will provide markets an alternative repo instrument to government securities repo. The RBI has specified the eligible collateral, participants, tenor, haircut and disclosure norms, which are similar to the existing repo guidelines. It has also defined the eligibility criteria for tri-party agent and roles and obligations of the agent.







Circular reference: RBI/2017-18/43 FMRD.DIRD.2/14.01.002/2017-18 dated 10 August 2017

Applicability: All market participants

Background and objective:As part of efforts to develop the money market, commercial papers (CPs) were introduced in India in 1990, with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and also provide an additional financial instrument to investors. Subsequently, primary dealers and satellite dealers (no more in existence, as they were discontinued by the RBI in 1997) were also permitted to issue CPs to enable them to meet their short-term funding requirements for their operations. With more and more corporates and NBFCs in India using CPs rather than the conventional channels of borrowing, the RBI had come up with revised draft regulations in February 2017 that had a greater focus on disclosure from CP issuers, with the aim of enabling investors to make informed decisions. Through this regulation, the RBI has finalised the regulations.

Reserve Bank Commercial Paper Directions, 20173

3. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11089&Mode=0







Synopsis of the regulation:

The following are the salient features of the final regulations:

i. Section 3: Eligible Issuers – Companies, including non-banking finance companies (NBFCs) and All India Financial Institutions (AIFIs), are eligible to issue CPs subject to the condition that any fund-based facility availed of from bank(s) and/or financial institutions is classified as a standard asset by all financing banks/institutions at the time of issue. b. Other entities like co-operative societies/unions, government entities, trusts, limited liability partnerships and any other body corporate having presence in India with a net worth of INR. 100 crore or higher subject to the condition as specified under (a) above. c. Any other entity specifically permitted by the Reserve Bank of India (RBI).

ii. Section 5: Eligible Investors – a. All residents, and non-residents permitted to invest in CPs under Foreign Exchange Management Act (FEMA), 1999 are eligible to invest in CPs; however, no person can invest in CPs issued by related parties either in the primary or secondary market. b. Investment by regulated financial sector entities will be subject to such conditions as the concerned regulator may impose

iii. Section 6.1: Form of instrument – The final regulations remain the same as the draft regulations with the exception that the CP can be issued in minimum denomination of INR 5 lakhs and multiples thereof instead of multiples of INR 1 lakh as specified by the draft regulations.

iv. Section 6.2: Rating Requirement – This section specifies the rating requirement which is to be obtained by the eligible issuers from the appropriate credit rating agencies (CRAs).

v. Section 6.3: Documentation Procedures – The processes around the documentation related aspects remain the same as what was proposed in the draft regulations.

vi. Section 7: Secondary market trading and settlement of CP – Flexibility has been provided in the settlement cycle for OTC trades in CP, it can be T+0 to T+1. OTC trades will be settled through the clearing house of any recognized stock exchange or any other mechanism as approved by RBI not necessarily from NSE / BSE / MSE.

vii. Section 8: Buyback of CP – The restriction period for buyback offer has been reduced to 30 days from the date of issue as against 60 days as stated in the draft regulations.

viii. Section 9: Duties and Obligations: The RBI has specified certain duties and obligations for the issuer, issuing and paying agent and credit rating agency which is to be complied with.







Impact assessment:

• RBI has clearly defined the list of eligible issuers, eliminating any ambiguity which previously existed in the draft regulations. Banks are to take note of the same and ensure compliance.

• Banks are to ensure that no investor is allowed to invest in CPs which are issued by related parties either in the primary or the secondary market.

• Banks have to take note of the change in denominations in the final regulation. The CPs may now be issued only in denominations of 5 lakh INR and multiples thereof, instead of the old regulation of 5 lakh INR and multiples of 1 lakh INR.

• Banks are to follow the new rating requirement wherein the rating is to be obtained from at least two rating agencies and the lower of the two shall apply. In case the rating issued by both the credit rating agencies (CRAs) is the same, then the issuer shall be able to issue CPs to the extent of the lower of the two amounts for which ratings have been obtained.

• Banks are to take note and comply with the duties and obligations as specified in the regulation.







Circular reference: RBI/2017-2018/48 FIDD.CO.FSD.BC.No.14/05.02.001/2017-18 dated 16 August 2017

Applicability: All public and private sector scheduled commercial banks

Background and objective:The Union Cabinet chaired by Prime Minister Shri Narendra Modi has approved the Interest Subvention Scheme (ISS) for farmers for the year 2017–18.

The scheme has been running since 2006–07. Under this, farmers can avail of concessional crop loans of up to 3 lakh INR at a 7% rate of interest. It also provides for an additional subvention of 3% in case of prompt repayment within a period of one year from the date of advance. The government has earmarked a sum of 20,339 crore INR for this purpose.

The interest subvention will be given to public sector banks (PSBs), private sector banks, cooperative banks and regional rural banks (RRBs) on the use of own funds and to National Bank for Agriculture and Rural Development (NABARD) for refinance to RRBs and cooperative banks. The ISS will continue for one year and it will be implemented by NABARD and the RBI.

The objective of the scheme is to make available at ground level agricultural credit for short-term crop loans at an affordable rate to give a boost to agricultural productivity and production in the country.

Interest Subvention Scheme for Short Term Crop Loans during the year 2017-184

4. https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11098







Salient features of the circular:

• In order to provide short-term crop loans up to 3 lakh INR to farmers at an interest rate of 5% p.a. during the year 2017–18, it has been decided to offer interest subvention of 2% p.a. and an additional interest subvention of 3% for prompt repayment to lending institutions, namely PSBs and private sector commercial banks (in respect of loans given by their rural and semi-urban branches only) on use of their own resources.

• This interest subvention will be calculated on the crop loan amount from the date of its disbursement/drawal up to the date of actual repayment of the crop loan by the farmer or up to the due date of the loan fixed by the banks whichever is earlier, subject to a maximum period of one year. In case farmers do not repay the short-term crop loan in time, they would be eligible for interest subvention of 2% as against the 5% available above.

• In order to discourage distress sale and to encourage them to store their produce in warehouses, the benefit of interest subvention will be available to small and marginal farmers having a Kisan Credit Card for a further period of up to six months post the harvest of the crop at the same rate as that available to crop loans against negotiable warehouse receipts issued on the produce stored in warehouses accredited with the Warehousing Development Regulatory Authority (WDRA).

• To provide relief to farmers affected by natural calamities, an interest subvention of 2% p.a. will be made available to banks for the first year on the restructured loan amount.







Key points to be noted:

• Important dates for submission of audited claims:

- Eligible pending audited claims of 2015–16: Latest by 31 August 2017 - Interest subvention of 2%: Half-yearly basis as at 30 September 2017 and

31 March 2018 (to be accompanied by a Statutory Auditor’s certificate) - Additional subvention of 3%: One-time consolidated claims latest by

30 April 2019 (to be accompanied by a Statutory Auditor’s certificate)

• In order to ensure hassle-free benefits to farmers under the ISS, banks are advised to make Aadhaar linkage mandatory for availing of short-term crop loans in 2017–18.







Impact assessment:

• Banks would be in a better position to comply with sectoral targets in line with the RBI’s Master Directions on ‘Priority sector lending targets and classification’.

• Banks need to update their credit policy to incorporate the requirement of this circular and credit operations teams need to be intimated.

• The functionality of the core banking system should be updated so as to make Aadhaar linkage mandatory.

• Banks need to inform their compliance teams about the submission of subvention claims as per the due dates in the circular:

- Interest subvention of 2%: Half-yearly basis as at 30 September 2017 and 31 March 2018 (to be accompanied by a Statutory Auditor’s certificate)

- Additional subvention of 3%: One-time consolidated claims latest by 30 April 2019 (to be accompanied by a Statutory Auditor’s certificate)










Preface Impact assessment of regulatory changes in September 2017


Circular ref. no. Name of the circular Brief instructions

RBI/2017-18/31dated 2 August 20175

Marginal Standing Facility 1. Applicable to all scheduled commercial banks (excluding RRBs)2. As decided by the Monetary Policy Committee (MPC), the repo rate under the Liquidity

Adjustment Facility (LAF) is reduced by 25 basis points from 6.25% to 6.0% with immediate effect.

3. Consequently, the Marginal Standing Facility (MSF) rate stands adjusted to 6.25% with immediate effect.


Liquidity Adjustment Facility – Repo and Reverse Repo Rates

1. Applicable to all scheduled commercial banks (excluding RRBs), scheduled urban co-operative banks and standalone primary dealers

2. As decided by the MPC, the repo rate under the LAF is reduced by 25 basis points from 6.25% to 6.0% with immediate effect.

3. Consequently, the reverse repo rate under the LAF stands adjusted to 5.75% with immediate effect.


Standing Liquidity Facility for Primary Dealers

1. Applicable to all primary dealers2. Repo rate under the LAF has been reduced by 25 basis points from 6.25% to 6.0% with

immediate effect.3. Accordingly, the Standing Liquidity Facility provided to Primary Dealers (PDs) (collateralised

liquidity support) from the Reserve Bank would be available at the revised repo rate, i.e. at 6.0% with immediate effect.


Change in Bank Rate 1. The bank rate stands adjusted by 25 basis points from 6.50% to 6.25% with effect from 2 August 2017.

2. All penal interest rates on shortfall in reserve requirements (depending on the duration of shortfalls) specifically linked to the bank rate are revised as follows: Bank rate + 3.0 percentage points (9.25%) or bank rate + 5.0 percentage points (11.25%)

5. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11073&Mode=0 7. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11075&Mode=0

6. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11074&Mode=0 8. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11076&Mode=0














Exclusion of the name from Second Schedule to the Reserve Bank of India Act, 1934

The names of the followings banks have been excluded from the Second Schedule to the Reserve Bank of India Act, 1934, vide Notification DBR.No.Ret.BC.57/12.06.004/2017-18 dated March 30, 2017, and published in the Gazette of India (Part III - Section 4) dated 15 July–21 July 2017:1. State Bank of Bikaner and Jaipur2. State Bank of Hyderabad3. State Bank of Mysore

RBI/2017-2018/38 dated 3 August 201710

Natural Calamities Portal- Monthly Reporting System

1. Banks shall assign this work to a compliance team which shall compile the data from various stakeholders.

2. Banks shall roll out a process wherein a monthly MIS shall be generated for all such cases where relief measures are provided to the affected people in natural calamities. Relief measures shall include aspects like institutional framework, restructuring of existing loans, providing fresh loans and other ancillary relief measures.

3. Banks shall provide training to the staff of the compliance department to help them to understand how the data is to be compiled and how the return is filed in the portal.

4. The compliance department shall furnish a quarterly return for the period April 2017 to June 2017 and thereafter monthly returns, post July 2017. The compliance department shall ensure that the monthly return is filed on/before the 10th of the following month.

5. The State Level Bankers’ Committee (SLBC) Convenor Bank shall have an additional responsibility of keeping track of all the notifications issued by State/District Authorities for declaration of natural calamities for which relief measures were implemented by the SLBC/banks from April 2017 onwards and the same shall be uploaded in the portal.

In view of the national priority accorded to address the drought/flood or other type of natural calamity situation in the country and in the absence of a single centralised system, the RBI has developed the web portal for capturing data on relief measures extended by banks on a real-time basis at the request of the Government of India. This information/data will be made available to various stakeholders.

4. State Bank of Patiala5. State Bank of Travancore6. Bharatiya Mahila Bank


10. https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI38773596C29A0044608C9D34BE4FE30980.PDF













RBI/2017-18/39 dated 3 August 201711

Government Banking - Issue of Letters of Credit and Bank Guarantee

A review has been undertaken by the Reserve Bank on the entire gamut of Letter of Credit/Bank Guarantee (LC/ BG) transactions and based on the review, it has been decided that the RBI will continue not to issue LCs on behalf of the government and will not act as an issuing or advising bank for the government as far as transactions related to BGs are concerned. The government department concerned would be directly taking up the matter with any commercial bank identified by them and all matters concerned with the issuances of LCs should be dealt with by the government and the commercial banks, without involving the RBI.

As the LC/BG business is not part of agency banking, the government can choose any commercial bank for this purpose. The role of the RBI is strictly limited to reimbursement of payments made by the banks for such LCs/BGs on behalf of the government, after satisfying itself with the debit mandate given by the government. Further, the RBI may not issue any letter advising/recommending opening of LC/BG to the commercial banks on behalf of the government department.

RBI/2017-18/41dated 10 August 201712

Risk Management and Interbank Dealings- Reports to the Reserve Bank

1. Currently, banks are submitting ‘Form BAL’ through the Online Returns Filing System (ORFS). The RBI has now instructed banks to submit the same through the web portal at https://bop.rbi.org.in as per the format given in Annexure I of the circular. This shall be effective from 16 August 2017 (i.e. for the statement of the first fortnight of August 2017).

2. Also, monthly reporting of ‘statement of Nostro/Vostro balances’ is discontinued.












Preface ContactsOther notifications in September 2017


Circular reference: RBI/2017-18/63 FMRD.FMID No.3/02.05.002/2017-18 dated 21 September 2017

Applicability: All Authorised Dealers – Category I Banks

Background and objective:The Central Bank worked out the modalities for an efficient and single point reporting mechanism for all OTC interest rate and forex derivative transactions. Based on the modalities, the Clearing Corporation of India Limited (CCIL) has developed the platform for reporting OTC derivative transactions. Banks are mandated to report inter-bank and client transactions in currency swaps, inter-bank and client transactions in Foreign Currency (FCY) and Forward Rate Agreement (FRA)/Interest Rate Swaps (IRS), client transactions in rupee forward rate agreements (INR FRA/IRS)/interest rate swaps. The CCIL has also put in place a confidentiality protocol in consultation with the representative market bodies.

Trade Repository for OTC Foreign Exchange and Interest Rate Derivatives13













Extract from the regulation:

It has now been decided to remove the threshold for reporting FCY-INR and FCY-FCY forward trades between AD Category-I banks and their client’s w.e.f. October 03, 2017.

As a one-time measure, in order to update the outstanding balances in the Trade Repository (TR), AD Category-I banks are advised to report the following to the CCIL by October 06, 2017:

i. OTC currency option transactions between AD Category-I banks and their clients undertaken before April 02, 2013 and outstanding as on September 29, 2017.

ii. OTC currency option transactions between AD Category-I banks and their clients, with value below USD 1 million and equivalent thereof in other currencies, undertaken in the period April 02, 2013 - July 03, 2016 and outstanding as on September 29, 2017.

iii. Currency forward transactions between AD Category-I banks and their clients, with value below USD 1 million and equivalent thereof in other currencies, and outstanding as on September 29, 2017.












Impact assessment:

• AD bank shall update the current policy and process note to sync the reposting process with regulatory requirement.

• The bank shall compile the transaction data below which is outstanding as on 29 September 2017 and the same shall be reported to the CCIL:

• The bank shall put in place a process to reconcile the outstanding balance as per books and transaction repository on regular intervals.

• The bank shall provide training to employees for the updated process.• The CCIL and RBI are taking stringent steps to improve transparency in the

OTC derivative market. Now, market participants will have to report all trades for OTC foreign exchange and interest rate derivatives to the Trade Repository developed by the CCIL without considering any threshold. This clearly indicates that the market regulator wants nothing to be left out of its regulatory ambit.

Particulars PeriodTransaction outstanding as on

Limit

Currency option transactions

Before 2 April 2013

29 September 2017 NA

Currency option transactions

2 April 2013 to 3 July 2016

29 September 2017 1 million USD

Currency forward transactions

NA 29 September 2017 1 million USD











Preface ContactsOther notifications in August 2017


RBI/2017-2018/55dated 7 September 201714

Reimbursement of Merchant Discount Rate (MDR) Charges for Government transactions up to Rs.1 lakh through debit cards

1. It is now made abundantly clear that MDR on debit transactions up to 1 lakh INR, done for payment of government dues and which is to be absorbed by the government, cannot be deducted from receipts of the transactions. Agency banks are to remit the transaction amount in full and subsequently raise a claim for reimbursement of MDR. Furthermore, since the MDR of debit card transactions above 1 lakh INR and credit card transactions are not absorbed by the government, MDR should not deducted for these transactions as well.

2. The RBI has instructed banks to remit back the MDR amount to the respective ministries/government where remittance of receipts was net off of MDR charges.

3. The immediate instruction to remit MDR and claim MDR only as reimbursement may have an adverse impact on the fund flow as now there will an elapsed time period in receiving the reimbursement as against the erstwhile practice of deducting at the time of settlement of government receipts.


Export Data Processing and Monitoring System (EDPMS), Issuance of Electronic Bank Realisation Certificate (eBRC)

Based on the update of the Master Direction on Export of Goods and Services, the following is the impact on banks:1. AD Category-I banks will have to update the data of export proceeds in the EDPMS, as and

when they are realised.2. Starting from October 16, 2017, AD Category-I banks are required to provide eBRC only

for the export proceeds data available in the EDPMS, so as to ensure consistency of consolidated eBRC with the data in the EDPMS.


Priority Sector Lending - Targets and Classification: Lending to non-corporate farmers – System wide average of last three years

1. The RBI has now notified the priority sector lending target for direct lending to non-corporate farmers.

2. The same has been notified as the applicable system wide average figure of the last three years, which is 11.78% for FY 2017–18.


Investment by Foreign Portfolio Investors in Corporate Debt Securities – Review

1. With effect from 3 October 2017, masala bonds will no longer form a part of the limit for FPI investments in corporate bonds. They will form a part of the external commercial borrowings (ECBs) and will be monitored accordingly.

14. https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11117 16. https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11124

15. https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11119 17. https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11127













2. The amount of 44,001 crore INR arising from the shifting of masala bonds will be released for FPI investment in corporate bonds over the next two quarters in the following ways:Q3 FY18 – 27,000Q4 FY18 – 17,001

3. An amount of 9,500 crore INR in each quarter will be available only for investment in the infrastructure sector by long-term FPIs (i.e., sovereign wealth funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks).


Issuance of Rupee Denominated Bonds (RDBs) Overseas

1. Considering the foreign investment inflows in India, the RBI has excluded investment in masala bonds from the overall debt limit available to foreign investors. As a result, debt to the tune of 440 billion INR shall be excluded and freed up for offshore investors. Over the next two quarters—October to December and January to March—the limits shall be phased out. Consequently, this allows space for more foreign investment in our economy.

2. Another point to note is that after removing the bonds from the overall debt limit for foreign investment, masala bonds have been included in the rules for ECBs. Banks issuing such bonds will have to take prior permission for their issuance. All other aspects of the ECB policy shall be applicable for such bonds.

3. The relief for banks comes from the cancellation of the reporting requirement of rupee-denominated bonds separately. Previously, banks were reporting the transactions over email in addition to the ECB reporting.


Investment by Foreign Portfolio Investors (FPI) in Government Securities Medium Term Framework

1. The limits for investment by FPIs for the quarter October–December 2017 is increased by 80 billion INR in Central Government Securities and 62 billion INR in State Development Loans. The revised limits are allocated as per the modified framework prescribed in RBI/2017-18/12 A.P. (Dir Series) Circular No. 1 dated 3 July 2017 and given in Annexure 1.

2. The operational guidelines relating to the allocation and monitoring of limits will be issued by the Securities and Exchange Board of India (SEBI).














Limits for FPI investment in government securities

Quarter ending Billion INR

Central Government Securities State Development Loans Aggregate

General Long Term Total General Long Term Total

Existing limits 1,877 543 2,420 285 46 331 2,751

31 Dec 2017 1,897 603 2,500 300 93 393 2,893












Preface

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GM/October2017-11033

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PwC’s Banking Insights August 2017 · PwC’s Banking Insights August 2017. ... (NBFCs) and...

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